SGH Insight
In short, under “current law” scoring the Joint Committee on Taxation or Congressional Budget Office in its projections assumes tax cuts will expire as legislated and thus show savings after the expiry of certain elements of the 2017 TCJA. Extending the TCJA under that scoring would, in theory, “add” plus or minus $4 trillion of costs over a 10-year projection period.
Under “current policy” scoring, as the description suggests, the calculation is based on current policy, rather than legislation, and so simply extending the current TCJA policies would not add significant costs beyond technical adjustments here and there.
Importantly, there is precedent for using “current policy” scoring, including for example in the last administration when former president Joe Biden rejiggered some children’s assistance programs into new initiatives but at no new additional expense, and which raised no hackles from either side of the aisle.
So, the name of the game for Republicans may be not to offset the entire current law scored “cost” of the TCJA extension plus and real new costs of additional tax cuts, but to find perhaps $2 trillion or so in cost cuts over the standard 10-year projection period.
And so, despite Trump’s statement at Friday’s press conference with Japanese Prime Minister Shigeru Ishiba that he was now leaning more towards targeted “reciprocal” tariffs than a universal tariff, it seems clear to us that substantial revenue will need to be raised via tariffs no matter how these are labeled.
In other words, we do not expect “reciprocal” tariffs to be as modest as might be inferred from effective tariff rate differentials between the US and its major trading partners.
Rather, we expect the Trump administration will also factor heavily for non-tariff barriers, from China’s subsidies of domestic enterprises to the European Union’s heavy use of Value-Added Taxes (VAT) that effectively tax imported and other domestic consumption goods but are not applied to exports.
And finally, regarding the initial 25% tariff lobbed against Mexico and Canada for their lack of action in stemming the flow of fentanyl and migrants across the US border, which was delayed by 30 days after promises to cooperate, many in Washington think that may have been a dry run of the president’s powers under the IEEPA (International Economic Emergency Powers Act) for potential future tariffs as well.
In short, under “current law” scoring the Joint Committee on Taxation or Congressional Budget Office in its projections assumes tax cuts will expire as legislated and thus show savings after the expiry of certain elements of the 2017 TCJA. Extending the TCJA under that scoring would, in theory, “add” plus or minus $4 trillion of costs over a 10-year projection period.
Market Validation
Bloomberg 2/12/25
House Republican leaders took the first step Wednesday toward enacting trillions of dollars in tax cuts and raising the nation’s $36 trillion debt limit, offering a plan that risks rankling quarreling factions in the party.
The proposal aims to smooth the passage of President Donald Trump’s top legislative priorities: the extension of expiring individual and business tax passed in 2017, boosting defense and border security spending and cuts to non-defense spending.
Passing any measure is far from certain, given Republicans’ narrow and fractious majority. Democrats are expected to be unified in opposition.
The budget would allow Congress’s tax-writing committees to increase the deficit by $4.5 trillion to accommodate tax cuts and calls for $2 trillion in cuts to mandatory spending such as Medicaid and farm subsidies.
Bloomberg 2/13/25
President Donald Trump ordered his administration to consider imposing reciprocal tariffs on numerous trading partners, raising the prospect of a wider campaign against a global system he complains is tilted against the US.
The president on Thursday signed a measure directing the US Trade Representative and Commerce secretary to propose new levies on a country-by-country basis in an effort to rebalance trade relations — a sweeping process that could take weeks or months to complete. Howard Lutnick, Trump’s nominee to lead the Commerce Department, told reporters all studies should be complete by April 1 and that Trump could act immediately afterward.
Fresh import taxes would be customized for each country, meant to offset not just their own levies on US goods but also non-tariff barriers the nations impose in the form of unfair subsidies, regulations, value-added taxes, exchange rates and other factors that act to limit US trade, said the official, who briefed reporters before the announcement.
Finance Chair Mike Crapo (R-Idaho) told reporters Wednesday that he’s still insisting Republicans should use a budget tactic — known as the current policy baseline — that would make it appear like extending the expiring tax cuts costs nothing.
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The Senate complaints highlight another significant rift House and Senate Republicans will have to resolve in order to pass legislation with all of Trump’s policy priorities. Beyond extending the tax cuts he presided over in 2017, Trump has called for numerous other measures, including exempting tips and overtime pay from income tax.
"We need a current policy baseline and then from there we develop the numbers that we need,” said Crapo. “The House has to get a position that it can deliver the votes on. The Senate has to get a position that we can deliver the votes on, and then we see from there how we build the bill.”